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October 8, 2012

How Many Financial Planning Relationships Can You Really Have?

The number may not be as large as you think and technology doesn't seem to increase it

As financial planning firms grow more efficient, especially with the use of technology, it becomes possible for planners to manage an increasingly large number of clients. The only limitation, it would seem, is the time it takes to service them.

However, research in psychology and anthropology suggests that there may be another limit to the maximum number of clients–the physiological limit of our brain's neo-cortex that constrains the number of social relationships that can be actively maintained. This threshold–called "Dunbar's number"–is estimated to be about 150 people on average, and corresponds not just to the average size of many ancient tribes and villages, but also the military unit size of the Roman army, and even the average number of Facebook friends or engaged Twitter followers.

The implication of the research is that even as firms continue to become more efficient, there's still a physiological brain-based limit to how many clients we'll ever be able to manage, which allowing for some personal relationships as well may never be much higher than 75 to 125 for any planner regardless of the new tools and technologies we create in the future.

The inspiration for today's blog post was some recent reading I was doing about "Dunbar's number"–named after British anthropologist Robin Dunbar and based on his research–an idea that has direct pertinence given the depth of relationships we try to maintain with clients as financial planners.

Dunbar's Number

The origins of the Dunbar number was an observation that because social groups require ongoing social contact to be maintained, the maximum size of a social group may be limited by the size (literally, the volume) of the neo-cortex, the part of the brain most responsible for our social interactions. Accordingly, Dunbar looked at a range of 38 nonhuman primates, the average size of the neo-cortex for that species, and the average group size, and extrapolated an estimate of the maximum group size for humans. That estimate, as published in 1992 in the Journal of Human Evolution, was approximately 150 people.

Having identified an estimate for the maximum size of human social groups, Dunbar then searched through history to try to identify how humans have self-organized through history, to see if the 150 estimate could be validated, and indeed it was; approximately 150 people was consistently observed from the typical size of early tribal villages, to the basic unit size of professional Roman armies (and still approximates the size of a Company unit in most modern militaries).

Simply put, even when humans needed to stick together for safety and survival, they can typically only handle group sizes up to about 150. Beyond that, and our brains just can't keep track of everyone, and we tend to split off and form new groups.

Technology and Dunbar's Number

With today's technology, and the incredible communications tools becoming available, one might theorize that Dunbar's number will begin to break down. Surely with everything from email to phones to texting to social media, we can handle a greater number of relationships? After all, just look at those who have thousands of Twitter followers or Facebook friends.

In reality, though, recent research is showing that even in a world enhanced by technology, our brains still limit the number of relationships we can maintain, even if we might communicate and interact using new mediums to maintain those relationships.

For instance, some of Dunbar's own research into Facebook has found that even when we have hundreds or thousands of "friends," in reality most are "mere voyeurs looking into your daily life"–all but a core of about 150 who you interact with and maintain true relationships with. In fact, across all of Facebook, Dunbar would suggest it's no coincidence that the average user has about 120-130 friends, as that result itself fits Dunbar's number (almost precisely if you assume a dozen or two friends and family members who don't have Facebook accounts but are part of your real world social network).

Similarly, a recent research article on Twitter also found that while many people have vast Twitter followings, most people still only regularly engage with a maximum of about 100 to 200 stable relationships.

Ultimately, even with technology enhancing the communication, the physiological constraints of our brains limit how many social relationships we can truly maintain? Beyond that, we may have acquaintances, "friends", and followers, but the inner circle of real relationships remains limited.

In the second part of our post, we’ll look at Dunbar's number in financial planning.

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